President of the African Development Bank (AfDB), Akinwumi Adesina, has urged the federal government not to use low gross domestic product (GDP) as an excuse for incessant tax increment.
He said the federal government must exercise restraint in tax increment even though the country’s GDP ratio remains relatively low at 6.1 per cent.
Akinwumi who stated this in a lecture at the 51st annual conference of the Institute of Chartered Accountants of Nigeria (ICAN) said that while other countries with high tax rates have functional free education and free health care systems, such cannot be said for
Nigeria.
Nigeria increased its value-added tax (VAT) rate from five to 7.5 per cent in 2020 as part of measures to increase tax revenue. This followed advice from the International Monetary Fund (IMF) to increase its VAT rate to at least 10 per cent by 2022 and 15 per cent by 2025, which according to it, is the average rate in the Economic Community of West African States (ECOWAS) countries.
The AfDB president, however, said it will be double jeopardy to overtax citizens who provide basic amenities the government has failed to offer.
“Take the case of Norway for example. Its tax-to-GDP ratio is 39 per cent. Singapore’s tax-to-GDP ratio is 13.2 per cent. And Nigeria’s tax-to-GDP is 6.1 per cent. It is easy to make the comparison and say Nigeria needs to raise its taxes to similar levels as in Norway or Singapore.
“But also consider the following – In Norway, education is free through university. Singapore, a country that had only 1/3 of Nigeria’s per capita income at its independence in 1965, today has 100 per cent access to electricity and 100 per cent access to water.
“While progress is being made the challenge, however, is that in many parts of Nigeria, citizens do not have access to basic services that governments should be providing as part of the social contract.
“People sink their private boreholes to get water. They generate their own electricity oftentimes with diesel. They build roads to their neighbourhoods. They provide security services themselves.
“These are implicit taxes, borne by society due to either inefficient government or government failure. As such, we must distinguish between
nominal taxes and implicit taxes — taxes that are borne by the people but are not seen or recorded.
“It has become so common that we do not even bother to question it. But the fact is governments can simply transfer its responsibility to citizens without being held accountable for its social contract
obligations.”
Adesina further pointed out that to build trust with the society, governments must fulfil their part of the social contract, and
citizens must also pay their fair share of taxes adding that there must be mutual accountability.
He said governments should be opened up and citizens allowed a right to know how public finances are being used.
“This is why I believe that we must develop a ‘People’s Index of Governance’ with citizen accountability forums.
“But when people feel that their resources are mismanaged or being used for opulence, widening the gap between the leaders and those they are leading, it builds distrust and despondency, which then permeates the fabric of society.
“Leaders must not only be accountable; they must live simply. Power is not judged by wealth, but by transforming the lives of people. To earn the trust of people, we must create people’s wealth, not simply personal wealth,” he added.
